Private enforcement of competition rules France

21 November 2005

Orion Berg

As noted by Neelie Kroes, the Competition Commissioner, private enforcement of the competition rules has direct benefits for the functioning of the market as it has a strong deterrent effect and it promotes a culture of competition. It also provides direct justice for those who have suffered losses due to breaches of the competition rules. The Commission is keen to develop private enforcement in Europe and is due to issue a Green Paper on this topic by the end of the year, considering such issues as the passing-on defence, calculation of damages, indirect purchasers and collective actions. This is clearly a very important issue for the future development of EC competition law.

In this report, we discuss the possibilities, advantages and obstacles to the private enforcement of competition rules, i.e. (civil) actions between private parties with respect to alleged infringements of the competition rules and/or claims for damages following such infringements, for the following European countries: UK, Sweden, The Netherlands, Belgium, France, Germany and Italy.

Instead of merely listing the pros and cons of private enforcement actions in various countries, we have chosen a more practical approach. We discuss the various aspects of civil actions in the countries mentioned above by discussing the possible strategies in three different types of competition law disputes:

1. cartel agreements – cartel agreements can be damaging to third parties, e.g. competitors that are excluded or foreclosed from a market or purchasers who are overcharged for the products/services of the cartel members;

Case 1: cartel agreement

Hospital X purchases vitamin supplies on a regular basis. When attending a conference organised by a European branch organisation for hospitals, the head of X’s purchasing department learns that the same vitamins are sold at much lower prices by the same suppliers outside the country where X is located. However, upon X’s request, the vitamin suppliers refuse to sell the vitamins to X for the lower price at which they sell the same vitamins in other European countries. X has the impression that this is caused by an agreement whereby the larger pharma­ceutical companies jointly set minimum prices for their products in certain territories.

2. horizontal or vertical agreements – these can cause damage to the other party. We have chosen a vertical agreement for our example, but the strategies and considerations are not much different in the event of parties seeking enforcement of the competition rules with respect to a horizontal agreement, to which they are party.

Case 2: vertical agreement

A and B are parties to a distribution agreement. A is the producer and has a market share of 40% of the market for sales of sports gear and equipment in the EEA. B has been appointed as A’s sole distributor of its sport shoes in the national territory concerned. B has a market share of 30% on the national retail market for sport shoes.

According to their distribution agreement, which has a duration of 10 years, (i) A imposes on B an exclusive purchase obligation; (ii) B is compelled to purchase a fixed minimum quantity of products from A; and (iii) B must sell the products at prices specified in a price list applicable to A’s distributors. B wishes to challenge the distribution agreement and subsequently ask for damages.

3. abuse of dominant position – a purchaser or competitor can be the victim of abusive behaviour by a dominant undertaking and suffer damage as a result of excessive pricing, exclusionary practices, refusal to deal or grant access etc.

Case 3: abuse of dominant position

X is an alternative provider of fixed telephone services which entered the national market for fixed telephone services a few years ago. Originally X, like other new entrants to this market, was able to win a substantial amount of customers for its services. Recently, however, X has seen a substantial number of its customers switch to the incumbent operator Y, which holds a dominant position on the national market for fixed telephone services. Based on rumours in the market and implicit indications from its lost customers, X suspects that Y lures back customers by offering loyalty rebates and package deals for fixed telephone services and leased lines, on which market Y is also dominant.

X files a complaint with the national competition authority, who concludes – after a thorough investigation of Y’s business practices – that Y has abused its dominant position against X and other new market entrants. X wants to obtain compensation for the damage, which it suffered as a result of Y’s abusive behaviour.

We hope this case-by-case overview will help you to decide whether or not to engage in private enforcement actions and which jurisdiction you may choose, if you have a choice between various jurisdictions in view of the cross-border effect of the infringement concerned.

France

Case 1: cartel agreement

Hospital X purchases vitamin supplies on a regular basis. When attending a conference organised by a European branch organisation for hospitals, the head of X’s purchasing department learns that the same vitamins are sold at much lower prices by the same suppliers than in the country outside the country where X is located. However, upon X’s request, the vitamin suppliers refuse to sell the vitamins to X for the lower price at which they sell the same vitamins in other European countries. X has the impression that this is caused by an agreement whereby the larger pharma­ceutical companies jointly set minimum prices for their products in certain territories.

Legal basis for the action

In France, Hospital X may bring a claim against the suppliers on the basis of both Article 81 of the EC Treaty, to the extent that the alleged infringement involves several EU countries, and Article L.420-1 of the French Commercial Code, its French equivalent, which prohibits anti-competitive agreements or concerted practices.

Given that the French Competition Council does not have the authority to grant compensation to the victims of anti-competitive practices, X may bring its claim directly before the commercial courts.

As a claimant, X would bear the difficult burden of proving the infringement of competition law. X would be required to collect evidence from different countries to show (i) the concerted behaviour practised by the suppliers in various jurisdictions; and (ii) that the vitamins are sold at lower prices by the same suppliers in other countries.

Standing and jurisdiction

With respect to the applicable law and jurisdiction in the context of an international dispute, X may seek the joint and several liability of the cartel members before the French courts since France is the country in which the alleged injury has occurred. French courts would also apply French law to assess the case since French law is the law of the country where the alleged injury occurred, i.e. the French market, and there are sufficient facts related to the French market.

X’s standing to sue is unlikely to constitute an issue in the present case. Under French law, X would only have to demonstrate that it has a “legitimate interest” in the claim, construed as a personal, actual and direct interest in the claim, although French courts allow some flexibility with this requirement. Accordingly, if X is able to produce evidence showing, prima facie, that the hospital was a victim of the alleged anti-competitive practices, its claim is likely to be held admissible.

Burden and standard of proof

Under French law, breach of a statutory duty, such as competition law, gives rise to liability in tort. Thus, X would base its action on article 1382 of the French civil code which contains the general principles of French tort law.

As to the merits of the action, provided that X produces sufficient evidence in support of its claim, infringement of article 81 EC would constitute a wrongful act which may trigger the suppliers’ liability. X is not required to demonstrate any specific wrongful intention on the part of the suppliers; the demonstration of an infringement of competition law is sufficient to establish a wrongful act.

To bring a successful action, X must show that:

1. The defendant committed a wrongful act, i.e. an infringement of competition law;

2. X suffered losses; and

3. There is a causal link between the infringement and the losses suffered by X.

Collective action

X may try to convince other victims of the alleged cartel to join it in the proceedings. However, they would only be entitled to do so on a personal basis. There is no equivalent to a US class action under French law. It is possible for certain associations to institute proceedings on behalf of their members acting in the name of a collective interest. However, such associations must fulfil a list of specific requirements, inter alia, obtaining administrative authorisation.

Evidence

As for the standard of proof, the only requirement is that X produce evidence sufficient to convince the judge. French courts take a very flexible approach on this matter. Even if documentary evidence is likely to bear a more persuasive effect, any form of evidence would be admissible as long as it is legally obtained.

In principle, French Commercial Courts have powers of investigation. X may file a request for conservatory measures on an ex parte basis. In particular, the hospital could ask for certain pre-trial measures such as an order to disclose specific documents.

In the course of the proceedings, X could also ask the Commercial Courts to order investigative measures: for example, to order the production of documents from the suppliers or third parties, to call witnesses or to appoint an expert. The judge has a discretionary power to issue such orders.

Proceedings before the Commercial Court are held on an adversarial basis and are mainly written. Parties exchange their pleadings and documentary evidence in advance. In the course of the hearing, there is no cross-examination as such. Each party may present its claim and the Court may briefly ask some questions.

However, it is likely that X would face some difficulties gaining access to all relevant evidence required to establish the existence of a price fixing cartel.

Firstly, there is no equivalent to the UK formal process of discovery and disclosure.

Secondly, suppliers involved in the proceedings may refuse to produce certain documents if they are able to show that they have a “legitimate interest” to do so. The suppliers may object on the basis that the documents contain sensitive business secrets which fall within the scope of “legitimate interests”. X could face the same objection in trying to obtain the production of documents from third parties to the proceedings. In addition, the suppliers’ lawyers may also invoke professional privilege which may also justify a refusal to produce the documents as far as third party interests are affected. Moreover, whilst, in theory, the failure to disclose documents could be the subject of sanctions, this is rarely the case in practice.

Thirdly, an important principle is that the Commercial Courts cannot order an additional investigation to supplement the claimant’s failure to produce its own evidence. For instance, it is unlikely that the Commercial Court would summon witnesses from the firms involved in the cartel, especially if they are foreign companies.

Timing

Proceedings before the French Competition Council may take up to 24 months. However, according to a new policy statement made in 2005, the French Competition Council has undertaken to speed up the process so as to render a decision on the case within 18 months.

Proceedings before the Commercial Courts may take between 12 and 18 months. However, such proceedings may take a substantially longer time if an expert is appointed, which is likely to be the case in a claim for damages resulting from anti-competitive practices. The complexity of the case, whether the decision rendered in the lower court is appealed or not and, of course, the extent of co-operation of the parties should also been taken into account (for example, in the Mors/Labinal Case, the final decision on damages was rendered in September 1998, while the anti-competitive behaviour took place from 1988 to 1991 and a first decision on the case was rendered in 1991).

Costs

It should be noted that before the Commercial Court, the unsuccessful party bears the costs of the proceedings. The Court may also order the unsuccessful party to pay an additional sum determined on a discretionary basis according to the principle of “fairness”. That sum would compensate the other party for any additional costs incurred relating to the proceedings and lawyers’ fees which are not included in the costs of the proceedings. On the other hand, before the Competition Council, each party bears the cost of the proceedings.

Causation

To bring a successful action, X would have to demonstrate that it has suffered direct, personal and certain losses. French law requires evidence of a direct causal link between the alleged breach and the losses incurred. X would have to show that the damage suffered is a direct consequence of the infringement. In other words, X must demonstrate that without the occurrence of the alleged practices, the losses would not have occurred.

Here, as a direct purchaser of vitamin supplies, X could demonstrate that it suffered a decrease in its profit margins as a result of the overcharging. X must also show that it has actually sustained the damage. Although the French courts have not expressly ruled on the defence of “passing on”, the suppliers may raise the argument that X passed on any overcharging to customers and, as a result, did not actually incur the alleged losses.

Damages

The calculation of damages under French law is highly unpredictable as it is not subject to review by the Cour de cassation (the highest Court in civil, criminal and commercial matters). Thus, French courts very rarely give their reasons for the assessment of damages.

Commercial Courts may grant compensatory damages in order to put the parties back in the position they would have been had the anti-competitive practices not occurred. Damages may include: (i) economic losses actually incurred by the victim, (ii) loss of profits; and even (iii) loss of business opportunities as long as the losses are certain and non hypothetical.

X would not be entitled to claim punitive damages. X could nevertheless stress the very harmful impact of the practices at issue and the wrongful intention of the parties to a cartel to harm their customers, which could justify the Court to order full and complete compensation for the damage sustained.

There is very little case law on how French courts assess damages. However, in a case related to excessive pricing resulting from concerted practices committed by tender companies, a French administrative court assessed the damage incurred by the SNCF by carrying out a comparison between the “normal” price of the market and the price resulting from the infringement of Article 81 EC (see Paris administrative tribunal, 15 December 1998, SNCF v. Dumez). Courts have also proceeded to a comparative examination of (i) the profits made by the injured company prior to the alleged breach of competition law and (ii) the profits made subsequent to such breach (see Commercial Court of Paris, 22 October 1996, Sté Automobile Peugeot v. Eco System where the Court relied upon the interim measures taken by the Council to establish a causal link between the infringement and the alleged damage suffered).

Advice to X

In view of the above, and given the complexity of the case, it would be advisable for X to first bring a claim against the suppliers before the French Competition Council so that the hospital can benefit from the Council's extensive powers of investigation. After obtaining a decision on the existence of a breach of competition law, X may subsequently bring a claim before the French Commercial Court for compensation. Even though the Commercial Courts would not be formally bound by the decision of the French Competition Council, it will certainly serve as strong evidence of the existence of a breach (see Commercial Court of Paris, 22 October 1996, Sté Automobile Peugeot v. Eco System).

It should also be mentioned that any fine that would be imposed on the suppliers by the Competition Council would reinforce X’s claim for damages, especially in the present context where the French Competition Council is no longer reluctant to impose fines of significant amounts (On this issue, see Case 3 below).

Case 2: vertical agreement

A and B are parties to a distribution agreement. A is the producer and has a market share of 40% of the market for sales of sports gear and equipment in the EEA. B has been appointed as A’s sole distributor of its sport shoes in the national territory concerned. B has a market share of 30% on the national retail market for sport shoes.

According to their distribution agreement, which has a duration of 10 years, (i) A imposes to B an exclusive purchase obligation; (ii) B is compelled to purchase a fixed minimum quantity of products from A; and (iii) B must sell the products at prices specified in a price list applicable to A’s distributors. B wishes to challenge the distribution agreement and subsequently ask for damages.

Legal basis for the action

Given that the supplier has a market share of more than 30% of the relevant market, the distribution agreement would not fall within the scope of the exemption provided for in the Commission Regulation No 2790/1999 of 22 December 1999. In addition, the resale price-fixing clause would certainly constitute a fundamental restriction under competition law which would affect the validity of the entire distribution agreement. The validity of the other restrictive clauses mentioned could also be an issue under EC competition law. Therefore, B may try to challenge the distribution agreement on the basis of Article 81 EC.

In principle, this case would not involve complex legal issues so long as the market power of A is not in issue.Furthermore, B should not face excessive difficulties in relation to providing relevant evidence since the distribution agreement to which it is a party contains the infringing clauses.

B’s most urgent concern would be either to terminate its relationship with A or to obtain an amendment of the anti-competitive clauses inserted in the distribution agreement.

B could file a request for interim measures before the Commercial Court. B could ask for a suspension of performance of the resale price-fixing clause pending a decision on the validity of the entire distribution agreement. Such a request may be made upon an ex parte basis if B demonstrates a case of urgency and that the circumstances require that the order be taken without adversarial proceedings. It could also be made on an adversarial basis where A would be entitled to file a written defence. The order could be handed down immediately or within few days after the hearing. The case is heard only on a prima facie basis. The judge does not decide the merits of the dispute, i.e. the validity of the entire agreement and assessment of losses sustained.

Standard of proof

To obtain an injunction, B would have to show either that:

1. An injunction suspending the resale price-fixing clause is required to prevent imminent damage, i.e. B can demonstrate it is losing customers as a result of the resale price clause; or

2. The injunction is required to stop a blatant unlawful act, i.e. B may argue that the resale price-fixing clause is prima facie contrary to competition law and the clause should therefore be held to be unenforceable.

The risk that the Commercial Court would reject such a request cannot be excluded since Commercial Courts are generally limited in experience in the area of competition law. Commercial judges may thus be reluctant to grant injunctive measures on the basis of the EC Regulation regarding distribution agreement with which they are not familiar.

Advice to B

Given that B’s priority would be to challenge the anti-competitive clauses inserted in the agreement, B should consider two options.

As set out above, B may bring an action before the Commercial Court to obtain a declaration that the agreement is null and void. However, French Commercial Courts take a very respectful approach towards the principle of enforceability of contracts. Accordingly, they are rather reluctant to amend or to rescind contractual agreements even on grounds of competition law.

B may also consider filing a similar request for interim measures with the French Competition Council.Such a request should be ancillary to the filing of a complaint on the merits taking into account that B would not be entitled to ask for damages before the Council. In addition, it should be noted that since a decision given on 29 June 2004, in the TV on DSL case, the Court of Appeals of Paris set a substantially higher standard for the burden of proof in interim measure cases.The Court held that in order to grant interim measures, the Competition Council must be "convinced of the existence of a reasonably strong presumption of infringement to the competition rules ". The previous standard only required the Council to establish that "an infringement cannot be excluded ". The French Competition Council recently followed the new standard set by the Court of Appeal in the Orange Caraïbes case (9 December 2004).

B may base its claim on article L. 420-3 of the French Commercial Code which provides that any anti-competitive agreement should be declared void as a violation of the law. In such case, the Commercial Court may order the restitution of all the sums which has been paid by B in performance of the invalid clauses.A could be ordered to pay interest from the date on which the infringement occurred.B would also be entitled to be compensated for any additional losses sustained on the basis of general tort law.

Case 3: abuse of dominant position

X is an alternative provider of fixed telephone services which entered the national market for fixed telephone services a few years ago. Originally X, like other new entrants to this market, was able to win a substantial amount of customers for its services. Recently, however, X has seen a substantial number of its customers switch to the incumbent operator Y, which holds a dominant position on the national market for fixed telephone services. Based on rumours in the market and implicit indications from its lost customers, X suspects that Y lures back customers by offering loyalty rebates and package deals for fixed telephone services and leased lines, on which market Y is also dominant.

X files a complaint with the national competition authority, who concludes – after a thorough investigation of Y’s business practices – that Y has abused its dominant position against X and other new market entrants. X wants to obtain compensation for the damage, which it suffered as a result of Y’s abusive behaviour.

Legal basis for the action

X would have to bring a claim before the Commercial Court for damages on the basis of general tort law. The decision of the French Competition Council would not be formally binding upon the Commercial Court. However, it would serve as strong evidence of the existence of the infringement. In particular, it would avoid any discussion as to the relevant market and the market power of the companies involved which are technical issues specific to competition law that Commercial judges are not used to deal with. Similarly, X would be able to use any evidence gathered during the proceedings before the Competition Council to strengthen its claim for damages in the Commercial Court. For example, in a decision of June 2003, the Commercial Court of Paris relied on bailiffs’ reports and evidence gathered during previous proceedings before the French Telecommunications Regulatory Authority to find that France Telecom, the French incumbent, has infringed its legal duty to refrain from using confidential information related to carrier pre-selection. On that basis, the Commercial Court found France Telecom guilty of unfair practices to the detriment of new entrants.

Fines

It is difficult to assess the level of any fines that would be imposed on Y. It is worth mentioning that the French Competition Council and the Court of Appeal of Paris have recently adopted a more severe approach in cases involving major breaches of competition law. In its Decision No 04-D-18 of 13 May 2004, the French Competition Council imposed a fine of €20 million on France Telecom for non compliance with its previous decision ordering interim measures. For the first time, the Court of Appeal then doubled the fine imposed by the Council to a total of €40 million in view of the seriousness of the breach involved.

In any event, a significant level of fines imposed by the Competition Council would reinforce any subsequent claim for damages even though it would not be formally taken into account by the Commercial Court when assessing the damages.

Damages

As mentioned above (see Case 1), X would only be entitled to compensation for losses suffered as a direct consequence of the infringement.

Under French law, the issue of damages is essentially an issue of fact which is not subject to review by the Cour de cassation. There is no guidance regarding the methods applied to evaluate business damages in the context of anti-competitive practices. Accordingly, the outcome of the proceedings is rather unpredictable which explains parties involved in claims for damages prefer to settle the dispute rather than taking the risk of paying a large amount of damages.

In the present case, economic damages may include inter alia:

- Actual losses incurred by X as long as they relate to the infringement: for example, costsincurred to acquire customers which subsequently switched tothe incumbent;

- Loss of profits: the profits that X would have made from customers had these customers not been lost to the incumbent; and

- Loss of opportunity: damages awarded would only correspond to a part of the lost profits since it is only a chance to realise those profits which is compensated; for example, X may try to show that the anti-competitive practices have also affected its ability to acquire new customers and to develop its activities in the same markets or closely connected markets.

X may also ask for damages resulting from any harm done to its reputation.

Expert evidence

It is likely that an independent expert will be appointed by the court. Such an expert will be entrusted with the task of preparing a report on specific factual issues as ordered by the Commercial Court. Under French law, experts must only assist the court in making a decision on the merits of the case. Their reports do not bind the court even though they are often followed by courts in practice. The experts are generally appointed from an official list. Experts do not have any powers of enforcement, in particular, to order a party to produce documents or to communicate relevant information. Experts have a professional duty to refrain from disclosing any sensitive business information to which they have access.

Parties may also choose their own experts to assist them in the proceedings. The opinion of such experts does not have the same weight as a formal report rendered by court-appointed experts. It may however strengthen the claim, especially when the expert is well-known in the relevant field. However, in such a case, any confidential business information would have to be protected. In practice, relevant sensitive business data may be placedon deposit at a bailiff’s office and be made available to the court. The other party could nevertheless argue that a refusal to grant it access to such data would amount to breach of the principle of procedural fairness which requires that any relevant evidence be subject to examination by all parties involved in the proceedings.

Here, it would be highly recommended for X to prepare an expert report setting out its evaluation of the damages on the basis of a complete and reasoned economic model. In particular, X would face the difficult task of producing evidence of the accurate number of customers lost as a result of the anti-competitive practices.

Calculation of damages

In view of the case-by-case approach taken by French Commercial Courts, it is difficult to determine the economic model on which the Commercial Courts would rely to calculate the losses sustained.In some cases, the method of evaluation applied is not even mentioned. For example, in the abovementioned case involving France Telecom for “winback” practices, the Paris Commercial Court decided to indemnify a small part of the costs incurred by the alternative provider of fixed telephone services (mainly the distribution costs incurred to acquire the customers). TheCommercial Court refused to award any compensation for other costs allegedly incurred and for any loss of profits. However, it is difficult to determine the reasoning behind this final decision as the court only indicated that it considered itself “to be sufficiently informed” to grant damages for an amount of €7 million without any further explanation (the alternative provider claimed an amount of €30 million).

In the Eco system/Peugeot case, the expert based its evaluation on a comparison between two consecutive accounting years. The expert evaluated the damages as corresponding to the difference between the yearly operating profits realised in the year before the infringement took place and the yearly operating losses incurred in the year during which the practices took place.

In the Mors/Labinal case (Court of Appeal of Paris, 30 September 1998), the economic method used is more thoroughly described.The expert carried out a reconstruction of the situation that would have been the case had the anti-competitive practices not taken place. The expert found that Mors had sustained a loss of the opportunity to win other tenders as a result of the anti-competitive practices. Firstly, the expert evaluated the average margin realised by Mors in any tender. Secondly, the expert tried to assess the potential markets and the probability of Mors penetrating these markets. He concluded that Mors could have held a 70% market share as compared to the 25% that it actually held. The expert also added that Mors was deprived of its chance (i) to recover fixed costs incurred prior to manufacturing the product in question and (ii) to maintain one of its business premises.

Advice to X

X should have to bring its claim before the Commercial Court. As mentioned above, it would have to prepare an expert report. Instituting proceedings would certainly serve as a strong means of putting pressure on Y to negotiate a settlement agreement.

Summary

To summarise our experiences with private enforcement in the various European countries, we have drawn up the two matrices below, in which the obstacles and advantages to private enforcement have been indicated.

Matrix I: Obstacles to private enforcement

The matrix below indicates which factors may present obstacles (on a scale of 1 to 5) to private enforcement in the main EU Member States.

1=no problem, 2=minor problem, 3=neutral, 4=possible problem, 5=major problem

UKSwedenNetherlandsBelgiumFranceGermanyItaly
standing

1

1

1

1

1

1

1

obtaining evidence

1

4

5

5

5

5

3

collective action

4

4

4

4

4

5

4

limitations on forms of evidence

1

1

1

2

1

1

3

witness hearing

1

1

3

4

4

3

3

expert evidence

1

1

2

1

2

1

3

recognition of NCA / Commission decisions

1

2

1

1

1

1

3

burden of proof

4

4

4

4

4

4

3

causation

3

3

4

4

4

4

3

calculation of damages

2

4

4

4

4

4

4

passing-on

3

3

3

4

3

1

4

indirect injury

3

5

4

5

5

4

4

timing

5

5

3

5

4

3

4

costs

5

3

3

5

2

3

3


Matrix II: Advantages for private enforcement
The second matrix indicates which factors may facilitate private enforcement in the various EU Member States and thus may constitute a reason to choose a certain Member State for launching a private enforcement action.


UKSwedenNetherlandsBelgiumFranceGermanyItaly

standing

X

X

X

X

X

X

X

obtaining evidence

X

X

collective action

limitations on forms of evidence

X

X

X

X

X

witness hearing

X

X

expert evidence

X

X

X

X

X

X

recognition of NCA / Commission decisions

X

X

X

X

X

X

burden of proof

causation

calculation of damages

X

passing-on

X

indirect injury

timing

X

costs

X

X

X

X

X